What is a joint venture?
A Joint Venture is an association between companies or corporate groups (or even freelance workers) with two main features: it is strategic and temporary. Strategic, because it is conceived as a way to reach a concrete goal (usually to start corporate actions bound to make the business of the associates grow); and temporary, because it can be created to work in the short, medium or long term. Another basic feature of a Joint Venture is that the partners always retain their legal individuality and independence. This being said, it is true that from the very moment the association is created the partners that have signed the agreement will be obliged to act under the same management and rules. Do you want to create a Joint Venture in Spain, but still want to know more about it? You will find more details in this article by Investopedia.
All the advantages of a Joint Venture are derived from the blend of forces. There is a great example that has been quite renowned in the last years: the Sony Ericsson Joint Venture agreement. In the year 2000, a fire destroyed the installations where Phillips made computer chips for Ericsson. Considering the growing pains the Swedish company was finding when trying to get their production through, the managers decided to create a Joint Venture with the Japanese firm Sony in 2012. Since then, the Ericsson headquarters is located in Japan.
Want to set up a business in Spain? Consider a Joint Venture
It is easy to understand why maybe you should create a Joint Venture in Spain if, as a foreign entrepreneur, you want to widen your operating range and bring your business to Spain. In this blog we have already talked about how to set up a business in Spain, a country with a somewhat peculiar legislation. As well as the legal structures explained in this article (do not miss it if you really want to set up a business in Spain as a foreign entrepreneur!), the Joint Venture is also very popular option in Spain; and in the 99% of the situations, one of the partners is a foreign company. These partnerships have many benefits: competitiveness is increased by the combination of synergies, risks are reduced, new markets are opened (a very interesting feature for all the partners), crucial information is shared… Interesting, isn’t it?
But if you want to create a Joint Venture, in Spain, hold on for a second. There are also some inconveniences! A badly managed Joint Venture or a non-efficient business consultancy service can get you into serious trouble. Be careful, because if you do not hire a good business consultancy in Spain which can manage this matters properly you can end assuming high tax expenses, seeing how your interest are not as well-protected as those of your local partners, suffering significant economic losses for not having established clear regulations with your partners, paying all kind of penalties (accountant, labor, tax…) just because you are not familiar with Spanish laws… An endless list of headaches!
Save problems and expenses through a proper planning
If you want to create a Joint Venture in Spain, the first thing you should do is to hire a professional business consultancy specialized in setting up business in Spain. Experience, constant and fluid communication and an English-speaking team are the main features that will help you choose your advisors. Thanks to this smart decision you will prevent these problems (that can cost you a lot of money):
- A bad planning of the tax costs in the initial investment phase, during the development of the operation and in the final divestment
- Mistakes when choosing the right vehicle/structure for the Joint Venture. These mistakes can prevent the partners from enjoying interesting tax benefits.
- Lack of regulation of the basic clauses which affect the relationships between the Joint Venture partners: protection of the essential assets (brands, know-how, patents…), establishment of safeguards for the non-local partner (that is, your company) and rules for the profit participation of each partner, exist mechanisms to terminate the partnership or for divestment, transfer fees, corporate government and company management, etc.
Your best shot: getting good business advice in Spain!
Joint Venture is a structure which comes from the Anglo-Saxon laws. This is why many Spanish consultancies are not used to manage these business arrangements and are not familiar with the laws and special features that affect them. And the language factor is also a relevant feature: a fluid communication between advisor and company is crucial when performing such delicate and complex operations.
In LEIALTA we are glad to accompany you through these harsh procedures. If you want to create a Joint Venture in Spain, our service for setting up a business in Spain, managed by a young, professional, highly-experienced and English-speaking team, will help you to accomplish the procedure’s four main stages:
- Preliminary stage: Together with you, we will search and decide about the best structure for the operation and consider all its tax features.
- Formalization stage: Drafting of confidentiality agreements and Letter of Intention / Memorandum of Understanding
- Implementation stage: Signature of the collaboration agreement + parasocial agreements + essential additional contracts
- Completion and exit stage: It indicates how the partners’ ordered exit and the liquidation of the partnership will be managed once the Joint Venture is over.
We are sure that now you have a clearer idea about what a Joint Venture is and why it could be a great idea to create a Joint Venture in Spain as a foreign entrepreneur. If you have any doubts, just contact us or leave a comment. You will be surprised when you find out what we can do for your business projects in our country!